Nuke ‘Em From Orbit. It’s the Only Way To Be Sure.

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Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it. But for whatever reason these are articles that are representative of some chord that has been struck in Narrative-world. And whenever we think there’s a story behind the narrative connectivity of an article … we write about it. That’s The Zeitgeist. Our narrative analysis of the day’s financial media in bite-size form.

To receive a free full-text email of The Zeitgeist whenever we publish to the website, please sign up here. You’ll get two or three of these emails every week, and your email will not be shared with anyone. Ever.


Aliens (1986)

Nuke the site from orbit. It’s the only way to be sure.

It’s the best line from a movie full of them.

I couldn’t help but think about the idea of nuking inhuman monsters from orbit, when I saw this PR release from Buckingham Palace today, as Prince Andrew comes clean about his relationship with Jeffrey Epstein.


Prince Andrew releases lengthy statement regarding his relationship with Jeffrey Epstein [Hello! Magazine]

“I am eager to clarify the facts to avoid further speculation. I have stayed in a number of his residences. During the time I knew him, I saw him infrequently and probably no more than only once or twice a year. At no stage during the limited time I spent with him did I see, witness or suspect any behaviour of the sort that subsequently led to his arrest and conviction. I have said previously that it was a mistake and an error to see him after his release in 2010 and I can only reiterate my regret that I was mistaken to think that what I thought I knew of him was evidently not the real person, given what we now know.”

It’s the most convoluted, putrid, horrific, non-apology apology sentence ever written: “I was mistaken to think that what I thought I knew of him was evidently not the real person, given what we know now.”

Prince Andrew is “appalled” by everything associated with Jeffrey Epstein. In fact, “His Royal Highness deplores the exploitation of any human being and the suggestion he would condone, participate in or encourage any such behaviour is abhorrent.”

LOL.

Also, this.

Interestingly enough, this isn’t even the most egregious post-Epstein-death PR tour. Here’s the taker of the proverbial cake, courtesy of Wall Street Journal “writer” John Stoll and his co-conspirators, the entire L Brands public relations team.

Trusting Jeffrey Epstein Taught a Retail Legend a Hard Lesson: Be Careful Whom You Trust  [Wall Street Journal]

“L Brands’ founder Leslie Wexner, who accused the disgraced financier of stealing vast sums of money, recalls his father’s warning about too much optimism.”

You see, this is why billionaire “retail legend” Les Wexner, a man who sells bras and panties to little girls under the Pink brand, gave tens of millions of dollars, a gigantic Manhattan townhouse, and power of attorney over all of his funds to Jeffrey Epstein – because he was just too nice of a guy. Because, gosh darn it, he was just too optimistic and trusting.

Oh well. Lesson learned!

It’s the most corrupt “article” printed in a major American publication that I have ever read, a stain on the souls of the “writer” and everyone who green lit its publication.

Haha. Souls. As if.

Weird how this is all happening after Epstein is shut up permanently, isn’t it?

Nuke the royals and the oligarchs from orbit. It’s the only way to be sure.


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Food Innovation Meets Financial Innovation

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Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it. But for whatever reason these are articles that are representative of some chord that has been struck in Narrative-world. And whenever we think there’s a story behind the narrative connectivity of an article … we write about it. That’s The Zeitgeist. Our narrative analysis of the day’s financial media in bite-size form.

To receive a free full-text email of The Zeitgeist whenever we publish to the website, please sign up here. You’ll get two or three of these emails every week, and your email will not be shared with anyone. Ever.


In one of our most-read notes ever – Too Clever By Half – Ben gave a succinct definition of financial innovation:

Financial innovation is always and in all ways one of two things — a new way of securitizing something or a new way of leveraging something.

We are now securitizing wokeness. Behold:

Beyond Meat investment frenzy paves way for Wall Street’s first vegan ETF [CBS News]

The U.S. Vegan Climate ETF, which is expected to launch next month, will likely be the first that investors are served up.

OK, so maybe that’s not a precise definition of what’s happening – although in fairness, I’m still not sure I know what a “Vegan Climate” is. Still, it follows a pretty common pattern for the pop-up thematic funds. Jam some buzzwords into a fund name (check), push it to market as quickly as possible (check), and find a way to get some media attention from an outlet that has no earthly idea how many funds like this are born, live and die in a single week (check).

If you’re feeling like this is creeping into the zeitgeist, well, you’re right. That’s why it’s in our Zeitgeist feature: The language in this article was among the most highly connected to that of all financial news published in the last few days. You probably remember a couple days ago when the Times and some other outlets picked up the Business Roundtable’s meta-game positive announcement about ‘stakeholders.’ I’ll withhold the snark. Read the thing and make up your own mind.

OK, maybe a little Fiat News-related snark: have you ever seen a piece about Big Corporate CEOs in which these were the pictures selected? The cool, soothing backdrop? These are not your father’s Rich, Evil, Old Dudes. These are Wise, Confident, Trustworthy, Responsible Executives. Well, everybody except for Larry, I guess. Can’t a guy catch a break?

Chief executives who are members of the Business Roundtable, include, left to right, front row: Julie Sweet of Accenture North America, Brian Moynihan of Bank of America, Tim Cook of Apple, Robert F. Smith of Vista Equity Partners of Austin. Back row: Jeff Bezos of Amazon, Mary Barra of General Motors and Larry Fink of BlackRock.

Still, whether it’s metagame playing by CEOs vying to not get their birthday parties taken away by the next (or incumbent) administration, or strike-while-the-iron’s-hot launches of nominally thematic funds which end up just holding Apple and Microsoft anyway, the social and political perceptions of Wall Street and financial markets are very much in the Zeitgeist. In our parlance, ‘we’re going to do something about corporate responsibility’ is a cohesive narrative with moderate-to-high attention.

But like most ‘financial innovation’, SRI – oops, ESG – oops, ‘impact investing’ comes and goes from the zeitgeist with some regularity. Part of its coming and going are the inevitable claims by those involved that it will be different this time. People are finally ready! Y’all, I worked on M&A processes which included two of the bigger SRI shops in the US back in the mid-2000s. I’ve seen the CIMs, the internal and external marketing plans before. Same language.

But as we’ve highlighted in detail for our ET Pro subscribers, the rise and fall of these narratives is entirely pro-cyclical. When markets have been lulled into complacency by supportive policy and good long-term returns with no major drawdowns, this is the friendly form that financial innovation takes. When a shock to equity markets or the economy punches everyone in the mouth, boardrooms and investment committees alike go from woke-to-S-R-what in about five seconds flat.

None of that means this or anything else is a bad product or that it shouldn’t exist. I have no idea, and as long as it isn’t being sold with some mythical alpha argument, I have zero problem with a clear-eyed vegan climatologist buying a financial product to express something about themselves. I have zero problem with the person on the other end of that making a buck from it. Or for feeling good about it, for that matter.

But for FAs and others wondering if this is a forever thing, if we’re reaching a new normal on these issues, I wouldn’t pay attention to the ebbs and flows of financial narratives. I’d be laser focused on political narratives, and the extent to which wealth inequality politics are brought front-and-center. That’s where you’ll see this zeitgeist manifest in changes that really may influence your business and your day-to-day processes for working with families and individuals.

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Frauds and Traitors

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Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it. But for whatever reason these are articles that are representative of some chord that has been struck in Narrative-world. And whenever we think there’s a story behind the narrative connectivity of an article … we write about it. That’s The Zeitgeist. Our narrative analysis of the day’s financial media in bite-size form.

To receive a free full-text email of The Zeitgeist whenever we publish to the website, please sign up here. You’ll get two or three of these emails every week, and your email will not be shared with anyone. Ever.


Invasion of the Body Snatchers (1978)

No one does crazy better than Donald Sutherland. Except Christopher Walken, of course.


General Electric CEO calls the scathing report that accuses the company of Enron-like fraud ‘market manipulation — pure and simple’ (GE)    [Business Insider]

GE CEO Larry Culp fired back at accounting expert Harry Markopolos on Thursday, calling his allegation of fraud an act of “market manipulation” done for personal gain.

GE shares plunged by as much as 14% on the report. 

The report alleged GE was committing fraud “bigger than Enron and WorldCom combined,” and that the company’s accounting left it “on the verge of insolvency.”

The company’s audit committee director also hit back at Markopolos and called on readers to “carefully consider the motivation behind this report.”


I’ve got zero problem with Harry Markopolos making a buck from his research, including getting a cut of the profits from a short trade. ZERO.

I also think it’s a typically myopic management reaction by Larry Culp and his cronies to focus on how Markopolos is getting paid rather than on the substance of the accusations.

Hey, Larry, no one who is selling your stock (or shorting it) cares how Markopolos is getting paid.

All they care about is whether GE has actual real-world liability here, so why don’t you focus on THAT.

But I have a big problem with Markopolos yelling “Fraud!” when what he really has is a decent short thesis.

To be clear, I LOVE a good short thesis. I made my living for a lot of years as a not half-bad short seller. As for the particulars of this case, I was shorting Genworth before it was cool to short Genworth, and I am intimately familiar with the games that can be played with consolidated financial statements, especially in the O&G world. More broadly, GE has been the gift that keeps on giving to any short seller worth his or her salt over the past decade.

But I also know what a fraud looks like. A fraud looks like what Dennis Kozlowski did with the Tyco books. A fraud looks like what Bernie Ebbers did with the Worldcom books. A fraud looks like what Jeff Skilling did with the Enron books. A fraud looks like what Dick Fuld did with the Lehman books.

This doesn’t feel like that to me.

The essential Markopolos thesis (as I understand it) is that GE is under-reserved for its long-term care insurance obligations that were part of the Genworth disposition and that GE is shielding an investment loss on Baker Hughes by keeping the BHI financials consolidated with the GE financials.

Okay. Aggressive accounting and playing for time as they seek to right the ship. Time they might not have. Got it. Love it. If I were still running a short book, I’d be all over this.

But it doesn’t smell like fraud to me, and I have a real problem with throwing that word around casually under any circumstances. I have an enormous problem with throwing that word around casually when you’re getting paid for the short thesis.

It’s the same problem I have with guys like Kyle Bass, who yells “Traitor!” whenever someone says golly, I’m not down for a trade war or any other kind of war with China.

Now Kyle says that he’s out of all of his short-China positions, and I’ll take him at his word. I guess. At this point, Kyle’s business persona and interests are so wedded to an escalating US-China conflict that I think it would be impossible for him to eliminate the personal financial implications of his public statements.

And don’t get me wrong. I understand that China is an implacable adversary to the United States.

But I also understand that there are real traitors in this world, none of whom are patriotic Americans who favor less conflict and more engagement with China in order to win the long game.

Just as I understand that there are real frauds in this world, none of whom are law abiding management teams who employ legal accounting practices in order to win the long game.

Throwing words like “Fraud!” and “Traitor!” around so casually … it doesn’t reveal the true frauds and the true traitors.

It makes it easier for them to hide.


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When Potato Salad Goes Bad

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Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it. But for whatever reason these are articles that are representative of some chord that has been struck in Narrative-world. And whenever we think there’s a story behind the narrative connectivity of an article … we write about it. That’s The Zeitgeist. Our narrative analysis of the day’s financial media in bite-size form.

To receive a free full-text email of The Zeitgeist whenever we publish to the website, please sign up here. You’ll get two or three of these emails every week, and your email will not be shared with anyone. Ever.


(c) Gary Larson

I really miss The Far Side.

I thought about this Gary Larson cartoon when I heard a live example of a narrative going bad on CNBC yesterday, before we even got into the whole “buh, buh the yield curve” ™ thing.

The Macy’s narrative went bad yesterday.


Bloodbath at Macy’s: Stores see ‘massive bleeding off of traffic and customers’   [Fox Business]

“Rising inventory levels became a challenge based on a combination of factors: a fashion miss in our key women’s sportswear private brands, slow sell-through of warm weather apparel and the accelerated decline in international tourism,” Macy’s Chairman and CEO Jeff Gennette said in the earnings release.

“We took markdowns to clear the excess Spring inventory and are entering the Fall season with the right inventory to meet anticipated customer demand.”


What do I mean when I say that the narrative went bad?

On Tuesday, the Macy’s narrative was “I think they can make their comps.”

On Wednesday, the Macy’s narrative was “I think they can cover their dividend.”

The Macy’s narrative is no longer about its P&L, but about its balance sheet. In narrative-world (if not the real-world), Macy’s is now fighting for its life. The question is no longer whether Macy’s turns a nice profit, but whether Macy’s can survive.

The Macy’s story is broken.

This oldie but goodie ET note is driven by a beautiful line from Arthur Miller’s “The Crucible”:

“Until an hour before the Devil fell, God thought him beautiful in Heaven.”

Or in the modern context, until an hour before Macy’s earnings release, Jim Cramer thought the company was a Buy. The next morning? Not so much.

What’s the moral of this story, other than that God hath no fury like Jim Cramer scorned?

When a company’s story breaks, the stock breaks, too. And not just for a little while, but for a loooong time.

Healing a broken stock can take years and years. It requires a new story to replace the old, broken story. It may never happen.

Just ask GE.


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A Cartoon in Three Parts

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Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it. But for whatever reason these are articles that are representative of some chord that has been struck in Narrative-world. And whenever we think there’s a story behind the narrative connectivity of an article … we write about it. That’s The Zeitgeist. Our narrative analysis of the day’s financial media in bite-size form.

To receive a free full-text email of The Zeitgeist whenever we publish to the website, please sign up here. You’ll get two or three of these emails every week, and your email will not be shared with anyone. Ever.


We use the term cartoon a lot. Perhaps some definitions are in order.

When we call something a cartoon on Epsilon Theory, what we mean is an active attempt to create common knowledge about what a thing means, or alternatively what matters about that thing. When Nike embraced Kaepernick, they actively sought to create polarized knowledge about what buying Nike products or stock meant. They succeeded. I’d argue that Chick-fil-a has done the same, albeit somewhat more subtly. In our own industry, Vanguard has done this, too, by cultivating a belief that index investing was a synonym for low cost investing. It isn’t.

Yes, brand is a kind of cartoon.

There are other kinds of cartoons, too. Not every company is a consumer product company for which a polarizing political statement will have the effect that Nike’s did. Instead, these cartoons exist in financial terms. The company doesn’t tell you what their brand means. Instead, they tell you which metric about their company or stock really matters. It’s a tougher game to play, because – at least superficially – there are theoretically people who couldn’t care less what management thinks. Back when they still existed, we called these people ‘value investors.’ But the whole game of cartoons is the creation of common knowledge – what everyone knows that everyone knows – and even if you know that cyclically-adjusted net unique monthly eyeballs is not a Thing, your own time horizons as a fund manager / analyst probably won’t permit you to ignore the two layers below you in the Keynesian Beauty Contest that believe that everyone else believes it is a Thing.

The “Top Line” cartoon is a simple, successful example of this kind of thing. So long as the underlying products – and sources of cheap capital – support it, the Top Line cartoon can be sustained for a very long time. Many of the other examples (we usually pick on Salesforce.com) look far more like examples of reductio ad absurdum than the Top Line cartoon’s gentle story-telling. The tell-tale signs, I think, are esoteric, business-specific metrics or accounting treatments over which management has substantial control and the public limited visibility.

The language of these cartoons is, in fact, so indicative that our own NLP analysis tends to arrange guidance, statements and financial results from heavily cartoonified companies into very distinct clusters. These are the articles which don’t so much publish management’s discussions about the business or financial results as much as they do about the measures being promoted by management (or in some cases, the sell side) as the right way to understand that company’s results.

The success of cartoon management has been such that these clusters have grown to dominate the news and company-produced content in many of the economic sectors we track. This is part of the zeitgeist. And today, it is really part of the Zeitgeist. To wit, the second most closely connected article to all other financial markets articles published in the last day or so comes from an industry that is almost entirely built upon a foundation of cartoon management.

Aurora Cannabis’ Guidance Was ‘Manna From Heaven’, Cannabis One CEO Says [The Street]

It’s a short video and a short article, but if you grew up listening to earnings calls in which management teams protested their indifference to short-term opinions floating around the market in favor of long-term growth opportunities, you’ll be delighted to hear how this has changed. Manna from heaven isn’t a monumental growth opportunity or a phenomenal new product or research breakthrough. Manna from heaven is now the relaxation of negative short-term narrative pressures on stock price.

The number three article in our ranking this morning is a defense of one of the oldest forms of cartoonification – the clever use of accounting to present results in a particular light. And so it is linked to all those other cartoon-creation articles by language. What language? Misleading. Accounting. Inflated. Adjusted. And “reaffirmation of guidance”, a precious term which often seems to cover all sins.

Australia’s Treasury Wine rejects report alleging it inflated profit [Reuters]

And when the belief in a cartoon fails, how far can you fall? Pretty far. This is the fifth most connected article in today’s Zeitgeist run (and for those inevitably curious at what I skipped over today, it was an Art Cashin “whistling past the graveyard” piece and a Cramer “what I learned from soft pretzels” article – you’re welcome).

Care.com Founder to Step Down as CEO Months After WSJ Report [WSJ]

No, of course cartoonification doesn’t always mean taking a creative interpretation of inventory accounting rules or their application. It doesn’t mean fraudulent representations about fundamental business practices. Sometimes it really is just telling people “the right way” to think about your company, product, results, or even yourself. For that reason, we think that anyone and any company who doesn’t see controlling their cartoon as part of their job is making a mistake. Narrative isn’t evil, even if it is used a vessel for many evils.

But much of the impulse behind cartoon creation is the same as the impulse behind other drivers of the Long Now. It is behind what some of us unserious people mean when we insist on using the term financialization. No, not the idiotic meme of “things mean rich people do to make money for shareholders instead of supporting this social value I hold!” We mean the things which people allocating capital have incentives to do because those incentives align with maximizing the current perception of value rather than actual long-term value.

Financialization – again, in our own use of the term – is little more than a belief that there are incentives to deploy capital and labor resources to ends other than long-term value creation, that our present always-on media, social landscape and transformation of financial markets into political utilities aggravate those incentives, and that this might be bad.

The Long Now is how this tendency permeates not only financial markets but our personal financial decisions, friendships, life decisions, political engagement and cultural participation.

Cartoons are the engine behind both.

Clear eyes – control your cartoon.

Full hearts – control the extent to which controlling your cartoon may be keeping you from pursuing things of lasting value.

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The Last Chance

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Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it. But for whatever reason these are articles that are representative of some chord that has been struck in Narrative-world. And whenever we think there’s a story behind the narrative connectivity of an article … we write about it. That’s The Zeitgeist. Our narrative analysis of the day’s financial media in bite-size form.

To receive a free full-text email of The Zeitgeist whenever we publish to the website, please sign up here. You’ll get two or three of these emails every week, and your email will not be shared with anyone. Ever.


The John Walker, Last Cask – the final release of The John Walker. An elegant, triple-matured whisky including rare expressions from ‘ghost’ distilleries. Beautifully presented in a handmade Baccarat crystal decanter, with a bespoke design by Hand Engraver of Glass to Her Majesty the Queen, Philip Lawson Johnston.

There are a lot of angles we could take here.

Advertising and PR isn’t always missionary behavior, although its primary aim is usually similar. Companies want to cultivate common knowledge about a brand or a product. Talking about that would be, if you’ll forgive the expression, very on-brand for us.

We could write about the power of luxury and act-as-if narratives in context of Fiat World and the Long Now. Pretty on-brand there, too.

But neither of those on-brand takes is why we’re featuring this press release.

The Last Chance to Taste an Icon of Scotch Whisky [Press Release]

We are featuring this press release because the language it uses makes it the single most connected article in all of financial media today. Not a trade war article. Not a Trump politics article. Not the Fed. Not NIRP. Not currency wars.

Whisky.

And not just any whisky. An absurdly expensive, Rube Goldberg blended construction of old whiskies (not even sure it qualifies as Scotch, actually – a lot of non-barley grain). I love whisky, but have never had this one – it’s $4,000 a bottle, y’all – so maybe it really is some kind of ambrosia. But the main feature here is the use of really old barrel staves, only so many of which exist. It’s a thing which isn’t very likely to impart much of interest to the beverage, but is certainly rare. Because it is designed to be rare.

The reason this sits at the top of our Zeitgeist is because there are few narratives that define that Zeitgeist more than narratives of scarcity and access. Whether think-pieces on expanding definitions of Qualified Purchasers or Accredited Investors to give more investors access to alternatives, or discussions of scarcity in context of Bitcoin, or pension plans discussing why they’re trying to get access to higher capacity mid-market growth / accelerator funds pretending to be venture capital, this language is everywhere.

But there are whiskies that are rare because they have been aged in a barrel made from staves with limited availability and poured into a custom crystal decanter which is then lovingly placed into a burled wood box, all of which are designed to create scarcity, and there are whiskies that are rare because there is a natural lack of something desired. Oh sure, a 1966 Springbank Local Barley or, say, one of the last releases from the now-shuttered Port Ellen are still speculative investments. You are still betting, in the end, on how much someone else values a thing of which there is only so much to go around. Anyone who tells you there’s a whisky in the world for which the drinking experience is worth $4,000 more than comparable options has lost the plot.

But it is different. Of course it’s different. When things really get hairy, the attention paid to the narrative of scarcity is still dependent on the narrative of desirability of the scarce thing.

If you are sold investments on the basis of that scarcity – or told that you should pay this fee or that on a basis of scarcity or access – beware the similarity in language between the true and counterfeit. Not all scarcity and access is created equal, even if the language used to describe them is.

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Are You Sweet Talking Me?

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Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it. But for whatever reason these are articles that are representative of some chord that has been struck in Narrative-world. And whenever we think there’s a story behind the narrative connectivity of an article … we write about it. That’s The Zeitgeist. Our narrative analysis of the day’s financial media in bite-size form.

To receive a free full-text email of The Zeitgeist whenever we publish to the website, please sign up here. You’ll get two or three of these emails every week, and your email will not be shared with anyone. Ever.


Thug: I wanted to come by and personally say thank you. You’re making me good money. I’m making you good money.

Joker: Are you sweet talking me?

Suicide Squad (2016) – executive produced by Steve Mnuchin (no, I am not making this up)

It’s my favorite part of any Batman movie … that scene where the henchman pays a visit to the crazed supervillain – the Joker is the gold standard here – and you just know that the meeting is about to go terribly, terribly awry for the thug.

I couldn’t help but think of that classic trope when I read this article the other day:


Trump Berated CEOs Of ‘Big Three’ Airlines In Private Meeting, Says Report   [International Business Times]

The CEOs of the Big Three — American Airlines, Delta Air Lines and United Airlines — met with the President, in hopes of getting a positive outcome but ended up being on the wrong side as Trump berated them in the meeting.

During the yelling session, the President asked American Airlines CEO Doug Parker why the airline’s stock price had fallen despite a surging market.

Trump also reportedly reprimanded Delta airlines, whose CEO Ed Bastian was not present, for buying aircraft worth billions from European firm Airbus and pointed out that  Qatar Airways — one of the companies the U.S. airlines have a beef with — was buying its jets from Boeing.

NBC news quoted a person who had attended the meeting: “The President kept going back to it [Bastian’s absence], there was a lot of yelling.”

For almost a year, the Big Three carriers have been in a tussle with Qatar Airways, Etihad and Emirates, claiming that the Gulf-based airlines were undercutting them by offering below-market fares, aided by government subsidies.

The CEOs had presumed that the President would take their side in the dispute.

The meeting quickly turned into a confrontation, with Akbar al-Baker [Qatar Airways] calling the American CEOs ‘liars’ and President Trump hitting back.


I mean … we’ve all been there, right? It’s the meeting where we are all prepared and all confident that we have the agenda under control, that we know how to “manage” the Boss or the Board, but then it all goes wrong. You can feel it start to go bad with some stray comment or someone on your team who’s late to the meeting, and then before you know it all hell breaks loose and the Boss is yelling at YOU.

It all goes sideways.

I physically LOL’d when I read this note, because you just KNOW that Parker and Munoz and Bastian were CERTAIN that they had this meeting with Trump wired from the get-go. They had Peter Navarro set up the meeting, they had Kudlow there, they had Bolton there … they had even run ads on “Fox & Friends” to tee up Donald on this!

Nope.

Not enough sweet talk, I guess.

Plus the Qatar Airlines dude brought a powerpoint deck showing all of his Boeing purchases, and he “fought back hard”.

I don’t feel bad for Parker and Munoz and Bastian and the gang. They’re all thuggish mini-oligarchs, and the sole purpose of this meeting was to wield the power of their government to further their oligopoly against some other oligopoly wielding some other government’s power.

But I gotta think this has happened one way or another every single day for the past two-plus years, where thuggish mini-oligarchs (and not-so-mini-oligarchs) have the run of the place. Where you go in for a meeting with someone you think is the President of the United States, but it ends up being a meeting with the Joker.

It’s a funny scene in a movie.

It’s a crappy way to run a country.


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The Donkey of Guizhou

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Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it. But for whatever reason these are articles that are representative of some chord that has been struck in Narrative-world. And whenever we think there’s a story behind the narrative connectivity of an article … we write about it. That’s The Zeitgeist. Our narrative analysis of the day’s financial media in bite-size form.

To receive a free full-text email of The Zeitgeist whenever we publish to the website, please sign up here. You’ll get two or three of these emails every week, and your email will not be shared with anyone. Ever.


Yes, this is an actual photograph from an actual Chinese zoo, where a live donkey was dropped into a tiger pen.


A Forever Trade War Looms as Trump Deepens Battle With China  [Bloomberg]

China Takes On Trump by Weakening Yuan, Halting Crop Imports  [Bloomberg]


“There were no donkeys in Guizhou until an eccentric took one there by boat; but finding no use for it he set it loose in the hills. A tiger who saw this monstrous-looking beast thought it must be divine. It first surveyed the donkey from under cover, then ventured a little nearer, still keeping a respectful distance.

One day the donkey brayed, and the tiger took flight and fled, for fear of being bitten. It was utterly terrified. But it came back for another look, and decided this creature was not so formidable after all. Then, growing used to the braying, it drew nearer, though it still dared not attack. Coming nearer still, it began to take liberties, shoving, jostling, and charging roughly, till the donkey lost its temper and kicked out.

“So that is all it can do!” thought the tiger, greatly pleased.

Then it leaped on the donkey and sank its teeth into it, severing its throat and devouring it before going on its way.

Poor donkey! Its size made it look powerful, and its bray made it sound redoubtable. Had it not shown all it could do, even the fierce tiger might not have dared to attack.

– Liu Zongyuan (773-819 AD)

The fable of the Donkey of Guizhou is as well known in China as any of Aesop’s fables are known in the West, even to the point of reenacting the tiger murder scene for the “entertainment” of visitors to certain zoos. It’s a fable that every Chinese Politburo member knows just as surely as every American Cabinet member knows the fable of the Ant and the Grasshopper.

My point in relating the fable of the Donkey of Guizhou is not that I believe China is the tiger and the United States is the donkey in our current trade-war-going-to-currency-war.

My point in relating the fable of the Donkey of Guizhou is not that I believe the current United States president is a braying donkey in his “easy to win” trade-war-going-to-currency-war.

I mean … I do, but that’s not my point.

My point is that Chinese political leadership believes that they are the tiger and the current United States president is a braying donkey.

This sort of fabular narrative – this sort of meme – is every bit as strong and “real” as our fabular narratives and memes.

Our political leadership believes they have “leverage” and are playing the stronger hand. Chinese political leadership believes that, too.

That’s what makes a Game of Chicken. That’s what makes a game that is decided by political will, not by resources or starting positions.

This will get worse before it gets better.

This is the Second Horseman.


13+

Threat Display

5+

Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it. But for whatever reason these are articles that are representative of some chord that has been struck in Narrative-world. And whenever we think there’s a story behind the narrative connectivity of an article … we write about it. That’s The Zeitgeist. Our narrative analysis of the day’s financial media in bite-size form.

To receive a free full-text email of The Zeitgeist whenever we publish to the website, please sign up here. You’ll get two or three of these emails every week, and your email will not be shared with anyone. Ever.


This intimidating stance is enough to make even the most inquisitive bird move away

After a competitive game has gone on long enough, when we are all so tired of hearing the constantly changing stories, we all start to wishcast a little bit. We either see light at the end of the tunnel or we see one party being pushed to the brink. And we usually see whichever one best reflects the way our portfolios are positioned.

It is certainly the case that a competitive game CAN be made into something else. We argued at various points in late 2018 and early 2019 that existential / political rhetoric was coming dangerously close to transforming the US/China Trade War into a different kind of game. But as recently as the report we published in July, we warned that treating Game of Chicken rhetoric like existential escalation was a mistake:

The cohesion of these narratives, however, has fallen fairly sharply. We don’t think this means that it isn’t dominating the market’s attention – we think it means that more missionaries are joining the fray to promote their own narrative.

For now, we are not seeing the same existential saber-rattling. It is a short period, so we would not overreact. Still, some aspects of a now-global narrative war begin to look more like a Game of Chicken again. Take risk on their unpredictable outcomes at your own peril.

ET Pro Trade and Tariffs Monitor – 6.30.2019

Welp.

That hasn’t meant any fewer articles pushing a particular view on the calculus of the trade engagements, however, or how Tweets and threats influence the posture of each participant. Here’s one such piece that sat at the very top of the Zeitgeist this morning:

Trump Is Pushing China Ever Closer to the Edge [Bloomberg]

Only days after the U.S. and China described their first return to the trade negotiating table since May as constructive, Donald Trump shattered the truce by announcing new 10% tariffs on Chinese goods ranging from smartphones to children’s clothing.

Source: Bloomberg

Extra credit for spotting the Fiat News angle here.

“The renewed standoff throws up in the air how the trade talks can proceed: Both sides were due to meet in Washington in September. Observers said it dims any prospects for a near-term breakthrough and sets the ground for a protracted dispute between the world’s two biggest economies.

Yet Trump’s hawkish stance only extends so far. Asked by reporters on the situation in Hong Kong, he labeled the recent protests “riots,” adopting the language used by Chinese authorities and suggesting the U.S. would stay out of the issue.

The escalation was swift and unexpected. Walking it back may not be as easy.

Source: Bloomberg

It’s here that the, ahem, news article goes astray in its analysis. Every author describing a Game of Chicken will be tempted at some point to identity the ‘point of no return’, some arbitrary place where ‘walking it back isn’t easy’. The temptation to be the one who called the ‘turning point’ is so alluring as to be almost completely irresistible.

Let’s say it together, with feeling: the odds of a Game of Chicken are unknowable. If you think you know where the parties stand, if you think you’ve figured out whose hand is stronger, if you think you know where each party’s leverage puts them, then you are wrong.

In our judgment, the threat of the transformation of the Trade War into a purely political game in which Trump and the CCP use it as club to stifle internal political dissent is absent from the narrative, killed stone dead by the US’s passivity on Hong Kong (perhaps the easiest opportunity to make political hay on China ever given a sitting US president).

This is and remains a Game of Chicken. This is a threat display.

Never mistake a threat display for a transformation in the type of game being played.


5+

The Joy of Fiat News

10+

Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it. But for whatever reason these are articles that are representative of some chord that has been struck in Narrative-world. And whenever we think there’s a story behind the narrative connectivity of an article … we write about it. That’s The Zeitgeist. Our narrative analysis of the day’s financial media in bite-size form.

To receive a free full-text email of The Zeitgeist whenever we publish to the website, please sign up here. You’ll get two or three of these emails every week, and your email will not be shared with anyone. Ever.


There may not be a single news outlet on the planet that doesn’t dabble in Fiat News techniques from time to time. That is the nature of a competition game, after all – the rules are defined so that you either play or you lose.

But nobody – nobody – does Fiat News like the New York Times does Fiat News. Sure, CNN, MSNBC and Fox are a bit bolder, using every tool at their disposal to grey the line between analysis and news, to introduce affect into every term, to assign and present coverage that is at once entirely factual and entirely misleading. If we were being supremely charitable (and we won’t be – this is just a hypothetical), you might even argue that the Foxes and MSNBCs of the world are Not-Even-Fiat-News in some meta sense of the idea, simply because everyone knows that everyone knows that a decision to visit those pages is a decision to read a lot of opinions masquerading as news. They’re Not Even Pretending Anymore (TM), as someone might say, so if you’re reading them with any semblance of earnestness, you’ve basically given up.

But the sheer joy with which the Paper of Record publishes obviously affected content as news is a different thing entirely. And in their case, they really are still pretending. I am confident that this piece was published with a serious belief that it met news standards. I’m confident that view is still held. And yet.


Elizabeth Warren on a Wealth Tax [New York Times]

Look, we haven’t identified a systematic way to track down affect and intent in image selection, but to grossly paraphrase Justice Stewart, I know it when I see it. Let’s just say that the Times’s proprietary archive of GOP candidate images was somewhat less flattering. I won’t hold it against you if you disagree. This is clearly in Rusty’s-opinion-land.


“By now, Senator Elizabeth Warren of Massachusetts is known for being the candidate ready with a plan. But back in January, she was just getting her campaign started. And one of her very first proposals was to impose a wealth tax.”


But this isn’t. This is some sublime A-level Fiat News. The lede of the piece is an unclothed common knowledge missionary statement that communicates zero factual content and an assertion described as something that is ‘known.’ By whom? I dunno. Based on what? No idea. Maybe it’s true. It is certainly the impression that I have, but that raises some uncomfortable questions about how, exactly, ideas about what we all know we all know enter our collective subconscious. Hint: it’s pieces like this.


“When the United States government wants to raise money from individuals, it taxes what people earn — the income they receive from work or investments. But Ms. Warren wants the government to also tax the accumulated wealth — think stocks, real estate and retirement funds — held by the very richest Americans.”


This is not a Fiat News point, but an aside to say how delighted I am that anyone thinks ‘retirement funds’ represent a meaningful portion of this figure.


“It is expected to generate $2.75 trillion in revenue over a 10-year period — money that could help pay for expanded social programs.”


Passive construction probably isn’t halal with the style guide anyway. But when you omit the “who”, you aren’t just communicating vaguely. You are effectively presenting what amounts to an estimate, projection or judgment as a fact. The inclusion of the paired-up issue that follows is pure affect. Whether it’s Facebook Boomer Memes about “every dollar spent on X could have been spent on wounded veterans”, or a New York Times writer saying that we could use these taxes to expand social programs, you know you’re dealing with someone who wants you to draw a relationship between two things which does not exist.

That relationship is not intrinsic. Presenting it is an emotional appeal. Every time.

That’s what it means for someone who has a subtler grasp of the tools of Fiat News to tell you how to think.

There are plenty more to be found, but the last one may be the best.


“Well-funded opponents of the tax would be nearly certain to wage a legal battle against it.”


It’s obviously analysis rather than fact, but what is so marvelously plain about this statement is its intent to prime the pump on the issue. Before you hear any opposition, we want you to know that it is “rich people” who oppose doing all these good things.

Here’s the funny thing: putting aside big constitutional issues for a moment, I think that a wealth tax is generally better and more conducive to freedom than an income tax. It aligns better with what government ought to do, which is to act as an ongoing defender of the assets of its citizens against threats both internal and external. Paying like we would pay for insurance makes sense to me. The hilarious absurdity of any attempt to actually value what rich people own, however, means that I prefer to shift more of our tax structure to capital gains from income rather than try to pretend we know what someone’s private assets are worth year-to-year. It’s a view I think Ben shares, albeit in a more exaggerated way, perhaps.

In other words, this isn’t about us disagreeing with Warren, because in a lot of ways, we don’t. As always, this is about how we’re being told how to think. And it’s all the more seductive when it IS an idea we actually favor.


10+

Children of a Lesser Narrative

7+

Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it.

But for whatever reason these are articles that are representative of some sort of chord that has been struck in Narrative-world.


Why We Should Fear Easy Money [NY Times]

There’s an ET note for that.


There’s an ET note for that, too.


There’s an ET note for that, too, although we’d probably differ on the focus on bearish sentiment. The author is certainly right that these are possibilities, but we think the transformation of capital markets to utilities is a powerful, largely stable narrative.


You may not know his name if you aren’t in the money management industry, but Ruchir’s is a powerful missionary voice. Pension funds, sovereign wealth funds and others care what he says. They will repeat it to their boards. They’ll put it in their own words and call it their new outlook, or else they’ll put it in the ‘risks’ section of their 2020 strategic planning. That’s how narrative works.

Alas, this still isn’t the dominant narrative. Frankly, against the tide of ‘Financial Asset Appreciation = Economic Strength = National Strength’ memes promoted throughout political and financial media, it barely registers. Still, it’s gratifying to see some emerging coherence around these ideas, even if the piece had to summon the spectre of a crash to fit the Zeitgeist.

7+

We’re All MMT’ers Now

13+

Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it.

But for whatever reason these are articles that are representative of some sort of chord that has been struck in Narrative-world.


Why Trump swallowed a budget deal that bleeds red ink [Politico]

“The president asked Mnuchin to negotiate a deal. And Mnuchin went to Pelosi saying, ‘How much is it going to cost me to get a debt limit increase past the election?’’’ one former senior administration official said sarcastically. “He doesn’t care about the cost. Wall Street is happy. The defense folks are happy. That’s good enough.”

“He didn’t do anything. The pay-fors, offsets are a joke. It’s an accounting trick,” said one GOP senator. “It was sad. And he’s gleeful that the president loves him best for the moment.”

Back in 1971, Richard Nixon famously said “We’re all Keynesians now“, referring to his embrace of stimulative Federal government spending to juice his electoral campaign in 1972.

The only difference between Nixon and Trump in this regard is that at least Nixon made a half-hearted attempt at pretending that he cared about deficits. Ditto Reagan. Ditto Bush 41 and Bush 43. It’s my catchphrase about the oligarchic excess of the Trump regime:

They’re. Not. Even. Pretending. Anymore.

That’s why I found this Politico headline so funny … that somehow it was difficult for Trump “to swallow” a budget agreement that runs $1.4 trillion deficits for as far as the eye can see.

LOL.

This is exactly the budget that Trump wanted. Please, please don’t throw me in that briar patch!

You know, we spend a lot of time here at Epsilon Theory with Natural Language Processing (NLP) engines that allow us to visualize the narratives that wash over us like water. I would like to show you a visualization of the US budgetary debate narrative. I would like to show you a picture of the fiscal policy narrative and its connection to the investment narratives that swim in the financial markets ocean. There’s just one problem.

That narrative connection does not exist.

I mean … are there occasional articles printed in the national media about the federal budget and the national debt and all that “stuff”? Sure.

But there is essentially zero narrative or linguistic connection between those articles and anything written about financial markets. Our words about markets and investing do not connect to our words about budgets and spending. At all.

I’ve never seen a less cohesive, less attentive narrative structure.

And I’ve seen a lot of narrative structures.

Why is this important?

Because THIS is what complacency looks like.

What breaks that complacency?

If Trump is reelected in 2020, I think he pushes forward a $2 TRILLION bond issuance that is fully or partially monetized by the Fed. They’ll be called Infrastructure Bonds.

If a Democrat is elected in 2020, I think she or he pushes forward a $2 TRILLION bond issuance that is fully or partially monetized by the Fed. They’ll be called Green Bonds.

It’s the same damn thing. Because … once again, with feeling … They’re. Not. Even. Pretending. Anymore.

Does the market go up or down on this? Yes.

We’re all MMT’ers now.

You ready for that? I bet you’re not.


13+

I’m Not a Raccoon! I’m the Lone Ranger!

19+

Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it.

But for whatever reason these are articles that are representative of some sort of chord that has been struck in Narrative-world.


U.S. Regulator Probing Crypto Exchange BitMEX Over Client Trades  [Bloomberg]

The U.S. Commodity Futures Trading Commission is investigating crypto exchange BitMEX, according to people familiar with the matter, a platform that’s become wildly popular in Asia for letting people make big bets with little money down.

BitMEX Chief Executive Officer Arthur Hayes said in an interview in January that BitMEX removes anyone who flouted company rules barring U.S. residents and nationals. However, it is possible clients masked their location by using virtual private networks to assign their computer an Internet protocol address from a BitMEX permitted country, tricking filters put in place, Hayes said.

“It’s possible.”

LOL. We can all chuckle and laugh about the obvious hucksters and con men in crypto-world, the obvious raccoons like Arthur Hayes.

Luckily for Arthur, I’m sure that none of these recent legal “entanglements” will keep him from making his appointed rounds on CNBC.

I mean, when you have Sam Waksal on your network to talk about fraud in the biotech world … not as farce but as serious commentary … well, friends, we’re no longer arguing about what CNBC is actually selling, only the price.

But I want to say something about non-obvious raccoons. I want to say something about people who are not the target of an active criminal investigation or who have not gone to prison for fraud, but are hucksters nonetheless.

Anyone who tells you that you should hodl Bitcoin buy-and-hold a non-cash-flowing, non-productive thing because of “network effects” or Metcalfe’s Law or the like … that person is talking like a raccoon. I’m not saying they ARE a raccoon. Maybe they haven’t thought this out and are just parroting an ur-raccoon. That’s at least three mixed metaphors, but you get the drift. I’m trying to be generous here.

And to be clear, there are plenty of non-raccoon arguments for hodling Bitcoin buying-and-holding a non-cash-flowing, non-productive thing. There’s an inflation argument. There’s a security and privacy argument. There’s a fashion argument. I’m sure there are more.

Also to be clear, it’s not raccoonish to say that you should TRADE Bitcoin a non-cash-flowing, non-productive thing based on the transactional popularity of that non-cash-flowing, non-productive thing. Lots of people trade precious metals, for example. They buy and they sell based on anything they believe motivates other buyers and sellers. Good for them!

What I am saying is that there is no inherent VALUE in Bitcoin a non-cash-flowing, non-productive thing from network effects. There is no “tipping point” in the adoption rate or transaction volumes of Bitcoin a non-cash-flowing, non-productive thing beyond which it becomes “too big to shut down”.

In ten-dollar words, network effects are epiphenomenon, not phenomenon, when it comes to non-cash-flowing, non-productive things. They are a shadow of a belief system, not a signal of a belief system.

What did it mean that lots of people in 17th century Amsterdam transacted in guilders and tulips? It meant that lots of people in 17th century Amsterdam transacted in guilders and tulips. That’s it. There was no grand statement beyond that. There was no signal of inherent value contained in the transaction volumes of tulips. There was no more inherent value to a Semper Augustus bulb in 1636 than in 1626, even though lots more people bought and sold tulips in 1636 than in 1626.

Price drives the transaction volumes of Bitcoin non-cash-flowing, non-productive things.

Not the other way around.

There are prominent people at the intersection of Wall Street and crypto who know this to be true – who know that the Yay, network effects! narrative is complete BS when it comes to Bitcoin – but who promote the narrative anyway.

Why?

Because it’s narrative that drives the price of Bitcoin non-cash-flowing, non-productive things.

Because they are raccoons.


19+

The Only Winning Move

17+

To date we have written about the Panopticon in a mostly figurative sense. Clear eyes today means seeing it in a literal sense as well. Here’s your top of the Zeitgeist piece, a Financial Times feature on the death of privacy – and more importantly, the arguments being made in favor of its demise.

Is Privacy Dead? [Financial Times]

This is rather obviously an argument for the inevitability (if not explicitly in support) of the literal Panopticon. Indeed, there are few nudges more powerful than those which compel us to believe that we are already engaged in a contest of mutually assured destruction. How does the nudge work?

It tells you that you aren’t protecting your family if you don’t participate in the ritual of collective surveillance.

If tells you that you aren’t a functioning, right-thinking member of society if you don’t do your part to aid the herd immunity of mutually assured surveillance.

We killed our web-based ads this week. We did it for a few reasons. First, in all candor, we did it because the revenues from it were good (you’re an audience advertisers desperately want to reach), but not life-changing. Second, we did it because no matter how hard we worked with our partners, ads we didn’t feel good about kept slipping through the net (and while we’re not judging you, please bear in mind that some of the example ads you sent to me and Ben were, shall we say, uh, the result of your own browsing histories). Third, we did it because the technologies required to serve up the most valuable ads put us in the position of asking you to give up control of some of your data in ways that we found it hard to justify.

I don’t want to make this some kind of big deal, because it isn’t. We still have to collect information about you to accept payments – although even there, we are in the process of exploring the integration of btcpay through a self-hosted node to reduce even that requirement for those who are so inclined. And we are not communists: if we can find ways to serve non-subscribers advertisements that don’t effectively treat your data as if it were our own, we will put up the most obnoxious banner ads you can imagine – and smile doing it.

But no, the Big Deal is when all of us choose to act with reciprocity – acting in ways that are likely to promote cooperative gameplay. And friends, mutually assured surveillance is the ultimate competitive game, a massively sized and massively failed stag hunt that is part of the transformation of all of our social engagements into games with bad equilibrial outcomes for everyone. The nudges that can be summoned to secure our compliance are many:

We will hear that what we can do with others’ data can make us (and our shareholders) wealthier.

We will hear that it will make us safer.

We will hear that it will make our neighbors and communities safer.

Every last one of those things will be 100% true. Clear eyes.

Every last one of those things will also be 100% wrong. Full hearts.

17+

We’re Gonna Need a Bigger Boat

18+

Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it.

But for whatever reason these are articles that are representative of some sort of chord that has been struck in Narrative-world.


Artprice100(C): The Art Market’s Blue-chip Artists Yield Nearly as Much as the Top Performing Companies in the American Economy  [Morningstar]

Gender Face Swap Filter Is a Windfall for Snapchat  [US News & World Report]

As rivals combine, US Foods can’t make a deal  [Crain’s Chicago Business]

Back in April I wrote “This Is Water” about how financialization – by which I mean profit margin growth without labor productivity growth – has become the water in which we fish swim. We don’t just take it for granted … it has become completely unnoticeable even as it has transformed our capital markets into a wealth inequality machine.

Today, when I was looking through the most-connected financial media articles to write a Daily Zeitgeist note, I found three unrelated articles, each of which touches an element of financialization.


The first two articles touch on the ephemera, the frothy excess of a world where an essentially unlimited quantity of essentially costless money is available to pursue … whatever.

In this world of foam, only an idiot would actually invest in productive real-world assets. Why? Because in a financialized world the risk-reward-time dynamic of playing a new casino game dwarfs the risk-reward-time dynamic possible anywhere else.

Witness, for example, the ArtPrice 100 (c) index – a securitization of a tracking index for fine art auction sales. To be clear, you’re not actually buying or selling art here. You’re not even buying or selling shares in an ETF that is actually buying or selling art. No, you are making a bet on the “score” of the next fine art auction. It’s not just the functional equivalent of betting the over/under of a sports score with a legal bookie, it IS a bet on the over/under of a sports score with a legal bookie.

And worry not … “Artprice is preparing its blockchain for the Art Market.”

Next, we have the revenue “windfall” that a gender-swapping photo app is providing for Snapchat, now up … [checks notes] …. 190% through six months of 2019 and sporting a $22 billion market cap.

SNAP is a company that will never see a penny in GAAP earnings, of course, but that’s not what will make this stock go up or down. No, this stock will go up or down depending on the “score” of the next earnings announcement, where the game is how many Daily Average Users (DAUs) the company reports and projects for next quarter. Think they’ll top 197 million DAUs this quarter (last quarter was 190 million)? Then BUY! Think they’ll just hit their lowball DAU projections? Then SELL!


The third article has nothing to do with the ephemera and foam of financialized markets. It has everything to do with the barriers to further financialization, which are purely political.

US Foods is the third largest food distribution company in the United States, just behind PFG in annual revenues and less than half the size of the clear market leader, Sysco.

How do these companies drive profit margin and earnings growth? Through investment in more efficient supply chains and transportation networks?

LOL.

No, silly boy, they drive earnings growth through consolidation and the resulting ability to squeeze their suppliers more effectively. Consolidation which has ZERO financial barriers when your cost of capital is near zero and debt markets are tripping over themselves for the chance to throw money at companies like these.

The problem for further consolidation is purely political – will the FTC allow the mergers and acquisitions that the strategic planning groups at these three companies come up with?

The point of this article is that if PFG’s proposed acquisition of Reinhart Foods is given the green light, then a) US Foods drops to third place in the mega-size sweepstakes, and b) there really aren’t any more regional acquisition targets of any size (like Reinhart) for US Foods to go after.

The obvious solution? Cue a potential merger with Sysco to create the behemoth of all behemoths in the food distribution space. The only problem there is that this merger was proposed back in 2013, and it was nixed by the FTC.

Can US Foods get a merger with Sysco through the FTC six years later? I don’t know. But I’d bet a lot of money that they’re going to try.

And in a They’re. Not. Even. Pretending. Anymore. world, especially now that you’ve got Republicans as three out of the five commissioners, reversing the 2013 Obama ratio … I think they’ll get it.

Financialization is not a mean-reverting phenomenon. It’s too good of a gravy train for Wall Street, corporate management and the White House to stop now. So they won’t. Like any self-respecting Great White shark, the Nudging State and the Nudging Oligarchy never stop swimming. They never stop eating.

Want to survive these financialized waters if you’re potential shark food? You’re gonna need a bigger boat.


18+

When Did You Stop Beating Your Wife?

20+

Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it.

But for whatever reason these are articles that are representative of some sort of chord that has been struck in Narrative-world.


De Blasio’s ‘pay parity’ hypocrisy  [NY Post]

Back on planet Earth, there’s a gender pay gap at the top of his own administration. As Julia Marsh reported in Sunday’s Post, four of the five highest-paid members of his administration are men.

Overall in de Blasio’s top ranks, women earn 81 cents for every dollar earned by the men. And both Schools Chancellor Richard Carranza and new NYCHA chief Gregory Russ have salaries over $400,000, much more than their female predecessors.

Bill de Blasio is an apparatchik.

Give him a bowler hat and an umbrella, and he’s a dead ringer for John Cleese’s classic character, the Minister of Silly Walks.

My personal opinion of Bill de Blasio’s political career and ideology is a sense of relief that he’s too inept to be truly dangerous.

But is Bill de Blasio a hypocrite? No.

Bill de Blasio is an authentic good leftie soldier, and it’s that authenticity that makes him a successful politician today.

Even if it also makes me throw up in my mouth a little bit.

Sure, Bill de Blasio is pandering in a particularly cringe-worthy way when he says that he’ll force equal pay for women’s national sports teams “if elected president”. But at least it’s authentic pandering. There is no bone in Bill de Blasio’s body that does not believe this is the right public policy position, no matter what ridiculous lengths he might take it.

And that’s what makes this series of “articles” and editorials from the NY Post – claiming that there is some massive inequity and hypocrisy in de Blasio’s treatment of women in his own administration – so popular and central to this morning’s media Zeitgeist.

But as it turns out, everything about this “reporting” on the pay-parity hypocrisy of the de Blasio administration is complete horseshit.

For example, when the NY Post says that “four out of the five top-paying jobs in the de Blasio administration belong to men”, they neglect to tell you that one of those four men is de Blasio himself. How dare de Blasio – who does not set his own salary, of course – include himself in his own administration! So out of the five top-paying jobs of people Bill de Blasio hired, three are men and two are women. The sexist pig! If de Blasio had hired a woman for any one of those three jobs now filled by a man – something I’m sure he now wishes he had done – the entire pay-parity “scandal”, where “women earn 81 cents for every dollar earned by the men”, disappears.

This article is not a lie. There is no “fact” here that is not checkable and true. This article is not Fake News.

It’s worse.

This article is Fiat News, the presentation of opinion as fact, in pure and despicable form.

This article was specifically designed to manipulate someone like me … someone who is VERY predisposed to believe the worst about Bill de Blasio because I dislike his politics SO MUCH.

It’s a particularly virulent and destructive form of Fiat News we call a rage engagement.

Once you start looking for rage engagements – and their twin, the mirror engagement – you’ll see them everywhere in today’s media. Why? Because they WORK. Because we are hardwired to respond to manipulative “evidence” like this. Because this is how others win The Game of You.


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The Upside Down

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Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it.

But for whatever reason these are articles that are representative of some sort of chord that has been struck in Narrative-world.


Facebook’s (FB) Libra Faces Intense Scrutiny From Regulators  [Zacks Equity Research]

Facebook’s upcoming cryptocurrency, Libra, has drawn attention of banking and financial market regulators and policy makers globally. While the announcement has been applauded by cryptocurrency issuers, users and enthusiasts, it met a fast and worried response from central banks and regulators.

This is because regulators believe that entry of tech giants like Facebook into the banking and financial systems through cryptocurrencies like Libra, without any regulation, is too dangerous for consumers.

A recent statement by European Central Bank (ECB) executive board member Benoit Coeure, quoted by Bloomberg, also suggested this. Per Coeure, “It’s out of the question to allow them to develop in a regulatory void for their financial service activities, because it’s just too dangerous.”

Of course I’m a big fan of Stranger Things. Any show that can celebrate Dungeons & Dragons before it was called Advanced Dungeons & Dragons is a show for an OG gamer like me.

If you haven’t seen the show, the core plot device is a struggle between our dimension and an alternative dimension called the Upside Down. As the name implies, everything is topsy-turvy in the Upside Down, from the most fundamental laws of physics on down. That’s the Big Baddie in the picture above, known as the Mind Flayer (all of the monsters in the show have good D&D names … love it).

Narrative-world is a lot like the Upside Down.

I’m reminded of that when I read articles like the one here from Zacks, where we are told that the crypto community is overjoyed about Facebook’s Libra, but that government regulators are beside themselves with worry.

LOL.

This Zacks article is a classic construction of Fiat News – the expression of opinion as fact – chock-full of affect-laden words like “applauded”, “worried”, “because”, “believe”, and “suggested”. This article is figuratively shaking its finger at you, telling you how to think about Libra, not what to know about Libra.

Look, if your wall of worry is comprised of a mean letter from Maxine Waters and stern words from Benoit Coeure … well, god bless.

That’s not even a hurdle. It’s like two mini-hurdles that a child could step over.

Please. Libra was designed for government regulators. It is exactly what government regulators want to see in a stablecoin.

And of course all of the crypto raccoons are praising Libra. All attention is positive attention to the hucksters.

Who’s the real Mind Flayer? Modern financial media, that’s who.


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Raking it in

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Nike rakes in $3 billion after Colin Kaepernick calls foul on shoe [Denver Post]

We have written about the Colin Kaepernick / Nike saga before. It was the headliner for our inaugural piece that discussed how winning in a widening gyre requires politicians, companies and people to control their own cartoon – before someone else does it for them. Nike did it, and they won.

Some few months later, they’re back in the Zeitgeist, with coverage language powerfully connected to all other social and financial news. I think you can make a meta-game argument that their tactic this go around was a bit transparent. Maybe even long-term counterproductive, given some internal inconsistencies in the cartoon they’re created. What you can’t do, I think, is argue that it wasn’t effective in promoting and controlling that same, highly effective, polarizing cartoon today.

One of the easiest ways to spot a well-controlled cartoon is how it auto-tunes others’ perceptions to that narrative. The Denver Post gives us exactly that:

Remember, this is at the top of our Zeitgeist query. This language is making its way across financial media. Whatever we think about the reality or fairness of Nike’s decision or Kaepernick’s belief here, the narrative about Nike is that its wokeapitalism strategy is working. Outlets are attributing market price changes over a couple days to a specific event. Outlets are calling day-to-day volatility in total market cap ‘raking it in’, which says about as much as it does for financial literacy as it does the strength of the cartoon. Articles are even intimating that Nike is winning from the popularity of protest actions (and they may not be wrong):

The simplest takeaway from our first brief on this topic was that controlling your cartoon is an indispensable corporate tool in the widening gyre. The takeaway from this one is probably more important: there is now a strong narrative that controlling your cartoon works. A cartoon about cartoons now sits at the top of the Zeitgeist.

Don’t be surprised, friends. The world we live in is now the kind of world in which Jar Jar Binks is trending on social media because…well, because everyone wanted to know why Jar Jar Binks was trending on social media.

Alas, I fear it’s Jar Jars all the way down. Brace yourself for more of this.

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Here We Go Again

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Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it.

But for whatever reason these are articles that are representative of some sort of chord that has been struck in Narrative-world.


Trump says he’s optimistic about trade deal with Chinese President Xi, in interview with Tucker Carlson  [Fox News]

“You just recently hours ago met with the Chinese president, Xi Jinping,” Carlson said. “Are you closer, do you think after that meeting, to a trade deal?”

“I think so,” Trump replied. “We had a very good meeting. He wants to make a deal. I want to make a deal. Very big deal, probably, I guess you’d say the largest deal ever made of any kind, not only trade.”

One of the weirdest things about Donald Trump is how he forcefully pulls you close to his body when he shakes your hand. Watch for it whenever he has one of these formal handshaking events. He doesn’t extend his hand – or rather, he does for a nanosecond to lure you in – and then he yanks you really hard into his belly. It’s hilariously weird. Like the extra-long ties that he wears and the inverted-pyramid hands when he sits, I’m sure he read this in a “body language secrets” book long ago and has now seared these behaviors into his “deal-making” soul.

And yes, there’s an Epsilon Theory note on this.

In the same way that I can’t help myself but eat that last piece of fried chicken, no matter how long it’s been sitting out on the kitchen counter (and I’m talking DAYS here, people), Donald Trump can’t help himself but say things like this:

“The largest deal ever made of any kind”.

It’s hilariously weird.

And so here we go again … it’s the game of Chicken, where everyone thinks they can assign odds to a multiple-equilibrium game where odds are not just difficult to assign, but IMPOSSIBLE to assign. And whenever Trump says or tweets anything, no matter if it’s said or tweeted as mindlessly as any other behavioral compulsion, we will ascribe information to it. Or better yet, we will all believe that this is what we all believe. It’s Common Knowledge creation in action. By a natural, if compulsive, Missionary.

But there is a big difference today in the backdrop for Trump’s game of trade (and national security Chicken with China. When I originally wrote this note, it was December 18 and Jay Powell was still sailing the monetary policy barge up the tightening river. Now Powell is driving the Trump Train, or at least some version of it.

And there’s no way on god’s green earth Powell can reverse course AGAIN.

We’re on a one-way street with monetary policy now, at least through the 2020 election. So if we DO end up with a bona fide deal with China … if that’s the outcome of this game of Chicken … if the market rips and commodity prices soar and all is good with the world … even if all that happens, the Fed STILL isn’t going to tighten.

And that’s when the melt-up happens.


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The Solution To The Fintech IPO Shortage

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Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it.

But for whatever reason these are articles that are representative of some sort of chord that has been struck in Narrative-world.


Scott: Hey, how’s your girl, man? 
Luis: Ah, she left me. 
Scott: Oh. 
Luis: Yeah, my … mom died, too. 
[Beat; Scott gapes in awkward silence]
Luis: And my dad got deported. 
[More silence]
Luis: But I got the van! 
Scott:[quickly] … It’s nice!
Luis: Yeah, right?!

Ant-Man (2015)

The Solution To The Fintech IPO Shortage [Forbes]

The headline is bullish. The tone is positive. But the article is dour as hell. Why haven’t we seen Fintech IPOs, it asks, then provides the answer: because they don’t have sustainable business models, the companies don’t have clear value propositions, they can’t get to scale, IPOs did terribly last year and they haven’t done anything to change the actual economic proposition of financial services products to end users.

Other than that, Mrs. Lincoln...

Still, the piece manages to end with the kind of relentless optimism that you have to admire on some level. If they can figure those fourteen things out, expect more IPOs! Still, it’s an interesting question, given how powerfully non-financial tech and VC has managed to cultivate a supportive narrative. The problem is pretty simple, and it’s a narrative problem:

Everyone knows that everyone knows that financial services switching costs are extremely high.

It’s the source of the fundamental economic malaise affecting these companies – their stratospheric customer acquisition costs. It’s the source of the scale problem. It’s the reason the business models aren’t sustainable. Having a product that disrupts something customers hate isn’t enough if they still can’t fathom the pain in the ass that is figuring out, learning and actually pulling the trigger to do something different.

The successful Fintech plays have (as the article points out) either served other financial services businesses directly or have figured out how to make the complicated process of switching or simply starting to use a financial product people haven’t used before, well, easy. Any such company that isn’t actively owning its cartoon on this dimension – continuing to obsess over addressable markets and consumer frustration with incumbents – will continue to miss the boat.

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